Investing in property is an excellent way to build wealth if done correctly. Through property investment, you can borrow most of the funds to invest but still gain all of the profits. This will usually require taking out additional home loans for your property, but this is often seen as a stable way to build wealth. There is a difference between ‘good’ debt and ‘bad’ debt. Property investment is usually seen as ‘good’ debt as the tenant pays most if not all of it and you have the advantage of the capital gain.
Determine Why You are Investing in Property
New Zealand property owners invest for several reasons. Some wish to use property as an income source, others save for retirement or gain equity, and most invest for a variety of these reasons. Figuring out what exactly you want and how long you have to do it is a good start to planning your portfolio and securing home loans. Exit strategy is also a good thing to consider.
What Property Investment Strategy Interests You?
There are several strategies that vary by how involved you want to be (whether property investment is your full time job or something more passive), and how much risk you are willing to take. Here are several examples of the many strategies available:
Trade property – for short term investments where you purchase a property and on sell it for a profit, under new IRD guidelines there could be a tax liability if sold within 2 years.
Buy and hold property – where you make a long term investment in a property you think will increase in value over time. Generally, you would rent it out and aim to have a zero-cost ownership, This strategy would be used for capital growth, cash flow increases, or ideally both.
As with most investments, the bigger the return the higher the risk. Investment property is known as a secure long term investment, and there are many ways to minimise the risk. Speak to an iLender mortgage adviser to go over your risk minimisation strategies.
Planning for an investment property takes a lot of thought and planning and is highly achievable with access to great home loans via iLender.